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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-31470

PLAINS EXPLORATION & PRODUCTION COMPANY

(Exact name of registrant as specified in its charter)

700 Milam Street, Suite 3100

Houston, Texas 77002

(Address of principal executive offices)

(Zip Code)

(832) 239-6000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  x    No  ¨

40.4 million shares of Common Stock, $0.01 par value, issued and outstanding at April 30, 2004.

PLAINS EXPLORATION & PRODUCTION COMPANY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PLAINS EXPLORATION & PRODUCTION COMPANY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(in thousands of dollars)

See notes to consolidated financial statements.

1

PLAINS EXPLORATION & PRODUCTION COMPANY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands, except per share data)

See notes to consolidated financial statements.

2

PLAINS EXPLORATION & PRODUCTION COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands of dollars)

See notes to consolidated financial statements.

3

PLAINS EXPLORATION & PRODUCTION COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in thousands of dollars)

See notes to consolidated financial statements.

4

PLAINS EXPLORATION & PRODUCTION COMPANY

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(share and dollar amounts in thousands)

See notes to consolidated financial statements.

5

PLAINS EXPLORATION & PRODUCTION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1—Organization and Significant Accounting Policies

Organization

The consolidated financial statements of Plains Exploration & Production Company (“Plains”, “PXP”, “us”, “our”, or “we”) include the accounts of our wholly owned subsidiaries. We are an independent energy company engaged in the “upstream” oil and gas business of acquiring, exploiting, developing, exploring for and producing oil and gas. Our activities are all located in the United States.

These consolidated financial statements and related notes present our consolidated financial position as of March 31, 2004 and December 31, 2003, the results of our operations and our comprehensive income for the three months ended March 31, 2004 and 2003, our cash flows for the three months ended March 31, 2004 and 2003 and the changes in our stockholders’ equity for the three months ended March 31, 2004. All adjustments, consisting only of normal recurring adjustments, that in the opinion of management were necessary for a fair statement of the results for the interim periods, have been reflected. All significant intercompany transactions have been eliminated. Certain reclassifications have been made to prior year statements to conform to the current year presentation. The results for the three months ended March 31, 2004, are not necessarily indicative of the final results to be expected for the full year.

These financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements and should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2003.

Accounting Policies

Asset Retirement Obligations.    Effective January 1, 2003, we adopted SFAS 143 which requires entities to record the fair value of a liability for a legal obligation to retire an asset in the period in which the liability is incurred. A legal obligation is a liability that a party is required to settle as a result of an existing or enacted law, statute, ordinance or contract. When the liability is initially recorded, the entity is required to capitalize the retirement cost of the related long-lived asset. Each period the liability is accreted to its then present value, and the capitalized cost is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, the difference is reflected in oil and gas properties. In prior periods we included estimated future costs of abandonment and dismantlement in our full cost amortization base and these costs were amortized as a component of our depletion expense.

At January 1, 2003, the present value of our future asset retirement obligation for oil and gas properties and equipment was $26.5 million. The cumulative effect of our adoption of SFAS 143 and the change in accounting principle resulted in an increase in net income during the first quarter of 2003 of $12.3 million (reflecting a $30.8 million decrease in accumulated depreciation, depletion and amortization, partially offset by $10.6 million in accretion expense, and $7.9 million in income taxes). We recorded a liability of $26.5 million and an asset of $15.9 million in connection with the adoption of SFAS 143. Adopting SFAS No. 143 did not impact our cash flows.

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The following table illustrates the changes in our asset retirement obligation during the periods (in thousands):

Goodwill.    As a result of the sale of our Illinois properties, goodwill was decreased by $2.4 million which was considered in the loss on disposition recognized as an adjustment to oil and gas properties subject to amortization.

Stock-based Employee Compensation.    Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (SFAS 123) established financial accounting and reporting standards for stock-based employee compensation. SFAS 123 defines a fair value based method of accounting for an employee stock option or similar equity instrument. SFAS 123 also allows an entity to continue to measure compensation cost for those instruments using the intrinsic value-based method of accounting prescribed by Accounting Principles Bulletin No. 25 “Accounting for Stock Issued to Employees” (APB 25). We have elected to follow APB 25 and related interpretations in accounting for our stock-based employee compensation. The compensation expense recorded under APB 25 for our stock appreciation rights and restricted stock awards is the same as that determined under SFAS 123.

Earnings Per Share.    For the three months ended March 31, 2004 and 2003 the weighted average shares outstanding for computing basic earning per share were 40.2 million and 24.0 million, respectively, and the weighted average shares outstanding for computing diluted earning per share were 40.5 million and 24.2 million, respectively. The weighted average shares outstanding for computing diluted earnings per share include the effect of unvested restricted stock and restricted stock units. In computing earnings per share, no adjustments were made to reported net income.

Inventory.    Oil inventories are carried at the lower of the cost to produce or market value. Materials and supplies inventory is stated at the lower of cost or market with cost determined on an average cost method. Inventory consists of the following (in thousands):

Use of Estimates.    The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include (1) oil and natural gas reserves; (2) depreciation, depletion and amortization, including future abandonment costs; (3) assigning fair value and allocating purchase price in connection with business combinations, including goodwill; (4) income taxes; (5) accrued liabilities; and (6) valuation of derivative instruments. Although management believes these estimates are reasonable, actual results could differ from these estimates.

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Recent Accounting Pronouncements.    In 2003, the SEC inquired of the FASB regarding the application of certain provisions of SFAS No. 141, Business Combinations, (“SFAS No. 141”) and SFAS No. 142, Goodwill and Other Intangible Assets, (“SFAS No. 142”) to oil and gas companies. SFAS Nos. 141 and 142 became effective for transactions subsequent to June 30, 2001. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method and that acquired intangible assets be disaggregated and reported separately from goodwill. Specifically, the SEC’s inquiry was based on whether costs of contract-based drilling and mineral use rights (“mineral rights”) should be recorded and disclosed as intangible assets under the guidance in SFAS Nos. 141 and 142. The current practice for us and the industry is to present oil and gas related assets, including mineral rights, as property and equipment (tangible assets) on the balance sheet. Subsequent to June 30, 2001, we entered into a business combination and the majority of the purchase price was allocated to oil and gas properties.

An Emerging Issues Task Force Working Group (“EITF”) was created to research the accounting and disclosure treatment of mineral rights for oil and gas companies. As a result, the EITF added Issue No. 04-2, “Whether Mineral Rights are Tangible or Intangible Assets and Related Issues,” and Issue No. 03-S, “Application of FASB Statement No. 142, Goodwill and Other Intangible Assets, to Oil and Gas Companies”. The FASB recently issued FASB Staff Position 141-1 and 142-1 (the “FSP”) that clarifies that mineral rights are tangible assets and have further amended FAS 141 and FAS 142 accordingly. The EITF has not reached a consensus on Issue No. 03-S and any further guidance will be applied to the first reporting period beginning after the date that such issue is finalized.

Note 2—Proposed Merger with Nuevo Energy Company

On February 12, 2004 we announced that we had entered into a definitive agreement to acquire Nuevo Energy Company, or Nuevo, in a stock for stock transaction valued at approximately $1.0 billion, based on our March 31, 2004 closing stock price of $18.64 per share. Under the terms of the definitive agreement, Nuevo stockholders will receive 1.765 shares of our common stock for each share of Nuevo common stock. If completed, we will issue up to 38.8 million common shares and options to Nuevo shareholders and assume $203 million of net debt (as of March 31, 2004) and $115 million of Trust Convertible Preferred Securities.

The transaction is expected to qualify as a tax free reorganization under Section 368(a) and is expected to be tax free to our stockholders and tax free for the stock portion of the consideration received by Nuevo stockholders. The Boards of directors of both companies have approved the merger agreement and each has recommended it to their respective stockholders for approval. The transaction will remain subject to stockholder approval from both companies and other customary conditions. Post closing, it is anticipated that our stockholders will own approximately 52% of the combined company and Nuevo stockholders will own approximately 48% of the combined company.

The transaction is expected to close in the second quarter of 2004. We will account for the transaction as a purchase of Nuevo under purchase accounting rules and we will continue to use the full cost method of accounting for our oil and gas properties.

Note 3—Derivative Instruments and Hedging Activities

We actively manage our exposure to commodity price fluctuations by hedging portions of our oil and gas production through the use of derivative instruments. The derivative instruments currently consist of oil and gas swap and option contracts entered into with financial institutions. We do not enter into derivative instruments for speculative trading purposes. Derivative instruments utilized to manage commodity price risk are accounted for in accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”, as amended. Under SFAS 133, all derivative instruments are

8

recorded on the balance sheet at fair value. If a derivative does not qualify as a hedge or is not designated as a hedge, the changes in fair value are recognized currently in our earnings as other income (expense). If a derivative is designated as a cash flow hedge and qualifies for hedge accounting, the unrealized gain or loss on the derivative is deferred in accumulated Other Comprehensive Income (“OCI”), a component of Stockholders’ Equity until the sale of the hedged oil and gas production. Realized gains and losses on derivative instruments that are designated as a hedge and qualify for hedge accounting are included in oil and gas revenues in the period the hedged volumes are sold.

To qualify for hedge accounting, the relationship between the hedging instrument and the hedged item must be highly effective in achieving the offset of changes in cash flows attributable to the hedged risk both at the inception of the contract and on an ongoing basis. Hedge accounting is discontinued prospectively when a hedge instrument becomes ineffective. Gains and losses deferred in OCI related to cash flow hedges for which hedge accounting has been discontinued remain unchanged until the related product has been delivered. If it is probable that a hedged forecasted transaction will not occur, deferred gains or losses on the hedging instrument are recognized in earnings immediately.

We formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives and strategy for undertaking the hedge. Hedge effectiveness is measured on a quarterly basis. This process includes specific identification of the hedging instrument and the hedged item, the nature of the risk being hedged and the manner in which the hedging instrument’s effectiveness will be assessed. At the inception of the hedge and on an ongoing basis, we assess whether the derivatives used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.

During the first three months of 2004 and 2003, deferred losses of $17.8 million and $17.3 million, respectively, were reclassified from OCI and charged to income as a reduction of oil and gas revenues. As of March 31, 2004, $66.4 million ($40.1 million, net of tax) of deferred net losses on derivative instruments recorded in OCI are expected to be reclassified to earnings during the next twelve-month period. During the first three months of 2004 we recognized expenses of $1.6 million from derivatives that do not qualify for hedge accounting and $0.1 million for ineffectiveness of derivatives that qualify for hedge accounting.

At March 31, 2004, we had the following open commodity derivative positions:

Location and quality differentials attributable to our properties are not included in the foregoing prices. Because of the quality and location of our oil and gas production, these adjustments will affect our net price.

9

We utilize interest rate swaps to manage the interest rate exposure on our long-term debt. We currently have an interest rate swap agreement that expires in October 2004 that fixes the interest rate on $7.5 million of borrowings under our credit facility at 3.9% plus the LIBOR margin set forth in the credit facility (1.5% at March 31, 2004).

Note 4—Long-Term Debt

At March 31, 2004 long-term debt consisted of:

At March 31, 2004 we had $191.0 million outstanding under our $500.0 million senior revolving credit facility. The credit facility provides for a borrowing base of $400.0 million that will be redetermined on a semi-annual basis, with us and the lenders each having the right to one annual interim unscheduled redetermination, and adjusted based on the Company’s oil and gas properties, reserves, other indebtedness and other relevant factors. Additionally, the credit facility contains a $50.0 million sub-limit on letters of credit. Borrowings under the credit facility are secured by 100% of the shares of stock of our domestic restricted subsidiaries and mortgages covering 80% of the total present value of our domestic oil and gas properties. The credit facility matures in April 2006. At March 31, 2004, we were in compliance with the covenants contained in our credit facility and could have borrowed the full amount available under the credit facility.

At March 31, 2004, we had $275.0 million principal amount of 8.75% notes outstanding. The 8.75% notes are our unsecured general obligations, are subordinated in right of payment to all of our existing and future senior indebtedness and are jointly and severally guaranteed on a full, unconditional basis by all of our existing and future domestic restricted subsidiaries. The 8.75% notes are not redeemable until July 1, 2007. On or after that date they are redeemable, at our option, at 104.375% of the principal amount for the twelve-month period ending June 30, 2008, at 102.917% of the principal amount for the twelve-month period ending June 30, 2009, at 101.458% of the principal amount for the twelve-month period ending June 30, 2010 and at 100% of the principal amount thereafter. In each case, accrued interest is payable to the date of redemption. In the event of a change of control, as defined in the indenture, we will be required to make an offer to repurchase the notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of the repurchase.

Note 5—Related Party Transactions

Our Chief Executive Officer is Chairman and director and certain of our officers are officers of Plains Resources Inc. (“Plains Resources”). We have entered into certain agreements with Plains Resources, including a master separation agreement; an intellectual property agreement; the Plains Exploration & Production transition services agreement that expires June 16, 2004; the Plains Resources transition services agreement that expires June 8, 2004; and a technical services agreement that expires in July 2005. For the three months ended March 31, 2004 and 2003 we billed Plains Resources $0.3 million and $0.1 million, respectively, for services provided by us under these agreements and for the three months ended March 31, 2003 Plains Resources billed us $38,000 for services they provided to us under these agreements. In addition, for the three months ended March 31, 2004 we billed Plains Resources $0.2 million for administrative costs associated with certain special projects performed on their behalf.

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We charter private aircraft from Gulf Coast Aviation Inc. (“Gulf Coast”), a corporation that from time-to-time leases aircraft owned by our Chief Executive Officer. In the first three months of 2004 and 2003, we paid Gulf Coast $0.2 million and $0.3 million, respectively, in connection with charter services in which our Chief Executive Officer’s aircraft were used. The charter services were arranged through arms-length dealings and the rates were market-based.

Plains All American Pipeline, L.P. (“PAA”), a publicly-traded master limited partnership, is an affiliate of Plains Resources. PAA is the marketer/purchaser for a significant portion of our oil production, including the royalty share of production. The marketing agreement provides that PAA will purchase for resale at market prices certain of our oil production for which PAA charges a fee of $0.20 per barrel. During the three months ended March 31, 2004 and 2003, the following amounts were recorded with respect to such transactions (in thousands of dollars).

Note 6—Commitments and Contingencies

We are a defendant in various lawsuits arising in the ordinary course of our business. While the outcome of these lawsuits cannot be predicted with certainty and could have a material adverse effect on our financial position, we do not believe that the outcome of these legal proceedings, individually or in the aggregate, will have a material adverse effect on our financial condition, results of operations or cash flows.

Note 7—Supplemental Cash Flow Information

Cash payments for interest and taxes were (in thousands of dollars):

Note 8—Property Divestments

In the first quarter of 2004 we completed the sale of our interests in certain non-core producing properties in New Mexico, Texas, Mississippi, Louisiana and Illinois for aggregate proceeds of approximately $25.6 million. Production from these properties averaged approximately 2,600 barrels per day in the fourth quarter of 2003.

Our oil and gas interests in the Illinois Basin fell outside of our core areas of operation and as a result did not compete well for capital with the properties within our core areas. The Illinois properties also carried with them high operating costs. These factors led to the sale of our Illinois properties

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through an extensive auction process. The sale was completed through a stock purchase agreement with standard terms, including typical purchase price adjustments, representations and warranties, and assumption of liabilities by the purchaser for an adjusted purchase price of $14.2 million. The reserves attributable to our Illinois properties were not material in relation to our total reserves. As a result, we do not expect the sale of these properties to have a significant impact on future operations or our stockholders.

Note 9—Consolidating Financial Statements

We and Plains E&P Company are the co-issuers of the 8.75% notes discussed in Note 4. The 8.75% notes are jointly and severally guaranteed on a full and unconditional basis by our wholly owned subsidiaries (referred to as “Guarantor Subsidiaries”).

The following financial information presents consolidating financial statements, which include:

Plains E&P Company has no material assets or operations; accordingly, Plains E&P Company has been omitted from the Issuer financial information.

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PLAINS EXPLORATION & PRODUCTION COMPANY

CONDENSED CONSOLIDATING BALANCE SHEET

MARCH 31, 2004

(in thousands)

13

PLAINS EXPLORATION & PRODUCTION COMPANY

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2003

(in thousands)